LDK Solar shares drop on steady 2011 outlook

By Nichola Groom| LOS ANGELES

LOS ANGELES China's LDK Solar Co Ltd repeated its 2011 revenue outlook, disappointing some investors who had been hoping for more following a stellar earnings report, and sending the company's shares down 4 percent after hours.

The company also said some customers in Italy were holding back on orders until that nation's new solar subsidy structure is clarified in the coming weeks.

LDK products such as wafers and cells are used to build photovoltaic solar panels that turn sunlight into electricity. The company has benefited from expanding into making the industry's key raw material, polysilicon, as well as selling its own modules.

By adding more products LDK has streamlined costs and increased profit margins as it seeks to increase its presence in the fast-growing market for renewable energy.

LDK's fourth-quarter net income was $145.2 million, or $1.09 per American Depositary Share (ADS), easily topping analysts' average estimate of 92 cents per ADS, according to Thomson Reuters I/B/E/S. A year ago, LDK recorded a net loss of $24.3 million, or a loss of 22 cents per ADS.

Revenue more than tripled to $920.9 million from $304.6 million in the same period a year ago. Analysts, on average, had expected revenue of $877.12 million.

Also on Thursday, LDK said it was exploring a potential spin-off of its polysilicon business. An initial public offering of the unit could help the company pay down a heavy debt load that includes $1.5 billion in short-term borrowings and $358 million in convertible senior notes.

Polysilicon prices have risen in recent months as supplies remain tight and one analyst said the company should seize the opportunity to spin off that business before prices retreat.

"This is as good a time as they are ever going to get," Morningstar analyst Stephen Simko said. "They would receive a lot of proceeds from this sale."

LDK executives declined to say how much money they expected the sale to raise, adding they would provide more information in two to three months.

The company recorded a gross margin of 27.3 percent during the fourth quarter, up from 22.2 percent in the previous quarter.

Solar demand surged last year as project developers scrambled to build solar power systems ahead of expected declines in solar subsidies in top European markets such as Germany, Italy and France. Those cutbacks are expected to result in an oversupply of solar products in the market later this year that could drive prices down and hurt profits.

"Things could easily stay strong for a quarter or two, but we're nearing the end of the boom in solar from a profitability standpoint," Simko said.

But LDK executives said module demand was still strong in Europe and prices have remained stable. Prices may decline, however, in the third and fourth quarters, they said.

Nevertheless, they said some customers in Italy were holding orders until that nation's solar policy becomes clearer.

LDK also said some of its polysilicon supplies were disrupted by the earthquake in Japan, but added it could source that supply from elsewhere. It also said some of its Japanese wafer customers had been affected, but it would relocate those sales in other markets.

The company said gross margins would fall between 24 percent and 29 percent for the year.

For the first quarter, LDK expected revenue of $800 million to $850 million and margins of 27 percent to 29 percent.

LDK expected to ship 2.7 gigawatts to 2.9 gigawatts of solar wafers, 800 megawatts to 900 megawatts of solar modules and 500 MW to 600 MW of solar cells, and to produce between 10,000 and 11,000 metric tons of polysilicon.

LDK Solar shares were down 4 percent at $12 in extended trading after closing up 59 cents, or nearly 5 percent, at $12.50 on the New York Stock Exchange.

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